In most cases it is hard to predict economic indicators which affect mortgage rates for the coming year. It is then best to look at actual facts, statistics, and opinions from industry experts to make a more informed mortgage rate prediction for next year, 2023.
Buyers Fear Increased Rates in Coming Years
It is predicted that the rising rates will continuously rise through 2023 and steadily increase for the following three years. The rates are expected to rise to 6.7% by 2023. They will then continuously increase and get to 8.2% by 2025, according to a housing survey released by the New York Federal Reserve. If this comes to realization, it would then be the first time that the average 30-year mortgage rate crosses 8% since 2000.
Mortgage Rate Increases Will Slow According to Experts
While buyers are mentally preparing for higher rates in the coming few years, industry experts think otherwise. According to the National Association of Realtors (NAR) forecasts, the 30-year mortgage rate average for 2023 will be between 5% and 5.5% throughout the better part of 2023.
Other experts in the mortgage industry seem to agree to the fears that buyers have that the rates will skyrocket should be abated. The Mortgage Bankers Association expects that the rates will average 4.8% by the end of this year and that we will see a decrease to an average of 4.6% by 2024. This prediction is based on a forecasted reduction of stabilizing yields on the 10-year treasury note – these are closely tied to mortgage rates. The Mortgage Bankers Association (MBA) expects the yields to steady at 2.8% and hold there through 2024.
According to Matthew Pointon, the senior property economist at Capital Economics, the mortgage rates will rise to 6.5% heading into 2023.
Melissa Cohn, the regional VP at William Raveis Mortgage, believes that the only way mortgage rates could go up to 8% in 2023 is if the plans to fight inflation that the Federal Reserve has have no effect. This can cause the Fed to raise the rates for a short-term to levels that have not been seen in years.
She also adds that it is possible for mortgage rates to get to 8%, but at that level, the economy would definitely cool off. At that point mortgage rates will come back down to affordable levels.
What Influences Mortgage Rates?
The Fed is not involved directly in setting mortgage rates, however, it does influence them by creating monetary policy that controls inflation and keeps the job market running well. One of the main tools that does this is the federal funds rate. This is a short-term rate that banks charge each other. As this rate goes up, the mortgage rates also go up. If inflation is not controlled within the next year, this could influence mortgage interest rates, eventually increasing the 2023 mortgage rates.
The inflation that is going on is a big concern for investors as it has a spontaneous influence on mortgage rates and the economy. The Fed uses various monetary policies to control inflation, which influences interest rates. The higher the interest rates shift the higher the mortgage will be, therefore making it inaccessible to a lot of homebuyers.
The Federal Reserve’s signals suggest permitting mortgage-backed securities (MBS) to runoff. This also includes leaving maturing MBS assets to expire – therefore easing the rising pressure on interest rates.
Some externally influencing factors such as the Ukraine and Russia conflict have a big effect on the global economy. The current trade standoffs with China are also creating difficult market conditions that continue to have a negative impact on the global economy.
Market conditions are very unstable; they therefore cause an increase in interest rates to compensate for the lost market influence. These influences affect monetary policy, leading to a change in the supply chain and great labor costs.
Mortgage Rates May Remain Steady in 2023
It is obviously hard to predict the future, however, based on data it is possible that interest rates won’t drop anytime soon. Even with the slightest rises in interest rates, it will eventually have an increasing effect on the mortgage market.
In this situation, investors may change their strategy to renting out the houses instead of flipping. This is because potential buyers may want to rent in the short term, as mortgage rates become too burdensome for them. Therefore, they could make some good passive income opportunities for investors moving forward.
For instance, in the high mortgage interest rate market of the 80s and early 90s, some investors created lifetime wealth in real estate. Mortgage rates may rise in 2023 and even into 2024, however that should not stop you from investing in real estate. The prediction is that mortgage rates will continue being high in the 6.2% – 6.9% range in 2023.
Pillar Mortgage is ready to help you through every step of the entire mortgage process from start to finish. Call us today!
